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1 1 (May 10, 2023)

handle is hein.crs/govelos0001 and id is 1 raw text is: Congre Mnor mun ~ssonoI Research Service er e Ilave d bate sne 1914 Updated May 10, 2023 Social Security's Funding Shortfall Overview Social Security provides monthly cash benefits to retired or disabled workers, their family members, and family members of deceased workers. Many people of all ages have some connection to the program, including an estimated 183 million covered workers and over 66 million beneficiaries in 2022. The program's income and outgo are accounted for with the Social Security trust funds. They represent funds dedicated to pay current and future Social Security benefits. In 2022, the program had total income of $1.22 trillion (94.6% from dedicated tax revenues), total expenditures of $1.24 trillion (99.0% for benefit payments), and trust fund reserves of $2.83 trillion (U.S. Treasury securities) available for future program spending. Under the 2023 intermediate assumptions, the Social Security Board of Trustees project, with these asset reserves, the trust funds to remain solvent until 2034 (the 2023 intermediate assumptions reflect the trustees' understanding of Social Security at the start of 2023). That is, until 2034, the trust funds are projected to be able to pay full benefits scheduled under current law on a timely basis. In 2034, however, the trust fund reserves are projected to be depleted. While the program would continue to operate with scheduled tax revenues, those revenues are projected to cover about three-fourths of scheduled benefits through the end of the projection period (2097). It is unclear how the U.S. Treasury would handle the payment of scheduled benefits under such a scenario. Social Security's projected long-range funding shortfall is driven largely by demographic factors. Declines in fertility and increases in longevity result in a lower ratio of workers to beneficiaries (projections show the ratio of workers paying into the system to support each beneficiary is estimated to fall from 2.7 in 2023 to 2.4 in 2034). Changes to Social Security have long been an issue of interest to Congress from a trust fund solvency perspective. Policy proposals to address Social Security's projected funding shortfall typically include a combination of revenue increases and benefit adjustments. Although the process of selecting specific program changes would likely involve intense debate in Congress, policymakers generally agree that taking legislative action sooner rather than later could mitigate the effects on workers and beneficiaries and allow people as much time as possible to adjust to the changes. H ow Is Social Security Fianced? Social Security is a self-financing program. Of its total income, 94.6% is from dedicated tax revenues: (1) payroll taxes paid by employers, employees, and self-employed individuals; and (2) federal income taxes paid by about half of beneficiaries on a portion of their benefits. The program also receives interest income on the asset reserves held by the Social Security trust funds (5.4%) and a small amount (less than 1%) of other income (including reimbursements from the U.S. Treasury's general fund). Social Security coverage is nearly universal, with an estimated 94% of all workers participating in the system in 2023. The Social Security payroll tax rate is 12.4%, divided evenly between the worker and the employer; the tax is applied to the worker's earnings up to an annual limit ($160,200 in 2023). Any covered earnings above the annual limit are not subject to the Social Security payroll tax and are not counted in the worker's benefit computation. Social Security benefits are intended to replace part of a worker's earnings. As such, a worker's benefit is based on his or her career-average earnings in covered employment (i.e., earnings subject to the Social Security payroll tax) and a progressive benefit formula that is intended to provide adequate benefit levels for workers with low career-average earnings. Issue Before Congress Over its 88-year history, Social Security has collected $26.40 trillion and paid out $23.57 trillion, leaving trust fund asset reserves of $2.83 trillion. Projections show that Social Security will be unable to pay scheduled benefits in full and on time starting in 2034, primarily due to demographic factors. What is Social Security's Projected Financial Outlook? For many years, Social Security collected more tax revenues than needed to pay benefits, resulting in the accumulation of trust fund asset reserves (held in the form of interest-bearing U.S. Treasury securities) available for future program spending. Starting in 2010, however, Social Security's total expenditures began to exceed noninterest income (i.e., cash-flow deficits emerged), requiring the program to rely on interest income to pay scheduled benefits. Starting in 2021, Social Security's total expenditures began to exceed total income (i.e., annual deficits emerged), requiring the program to draw on trust fund reserves to pay scheduled benefits. The trustees project that Social Security will continue to run cash-flow deficits throughout the 75-year projection period (2023- 2097) and that annual cash-flow deficits will grow markedly over time. For example, the program's cash-flow deficit was $88.5 billion in 2022 and is projected to be $440.1 billion in 2033 (in current dollars) (2023 Social Security Trustees Report, intermediate assumptions). Trust fund reserves are projected to decline steadily from their peak of $2.9 trillion to zero in 2034. Following the depletion of trust fund reserves, scheduled tax revenues are projected to be sufficient to pay 80% of scheduled benefits initially, declining to 74% by 2097.

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